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On Wednesday, UBS analysts maintained their Buy rating and $235.00 price target on Capital One Financial (NYSE:COF), currently trading at $181.42, following the company’s earnings report. According to InvestingPro data, the stock has shown strong resilience with a 16.8% return over the past year, despite recent market volatility. The report highlighted a core earnings per share (EPS) of $4.06, which excluded certain legal reserve activities and integration expenses related to DFS. The earnings beat was primarily due to a lighter provision, which was 14% below the Street’s expectations, even though the core pre-provision net revenue (PPNR) fell short by 5% due to increased expenses.
Capital One’s credit performance indicated some positive trends, with domestic card delinquencies over 30 days showing a year-over-year decrease of 23 basis points and a month-over-month decrease of 27 basis points. InvestingPro analysis reveals the company maintains a "GOOD" overall Financial Health score of 2.64, with particularly strong marks in price momentum and relative value metrics. The allowance for credit losses (ACL) ratio remained relatively stable at 4.91%, with the domestic card segment at 8.01%. Notably, Capital One released reserves, which could prompt questions similar to those posed to American Express (NYSE:AXP) and Synchrony Financial (NYSE:SYF) about not building reserves for potential macroeconomic uncertainty.
The company’s card growth stood at 4% year-over-year, with purchase volume increasing by 5%. However, the slight revenue miss against consensus was more driven by net interest margin (NIM), which was 7 basis points lower than consensus but 4 basis points higher than UBS estimates. Expenses on a core basis exceeded expectations by 3%, with marketing costs up by 10% and core operating expenses up by 2%.
The UBS analyst pointed out the clarity provided by management regarding net expense synergies from the DFS integration, which balances synergies from merging overlapping businesses against increased spending on risk, compliance, and reinvestment into networks. The analyst suggested that the earnings call would be critical for Capital One’s follow-through performance, particularly as there have been no DFS-related slides released yet. The long-term outlook for Capital One’s stock remains positive, according to the UBS analyst. Supporting this view, InvestingPro data shows the company has maintained dividend payments for 31 consecutive years and currently offers a 1.41% yield. With a market capitalization of $69.14 billion and trading at a P/E ratio of 14.7, InvestingPro’s Fair Value analysis suggests the stock is currently undervalued. Subscribers can access additional insights, including 7 more ProTips and a comprehensive Pro Research Report, which is available for over 1,400 US stocks.
In other recent news, Capital One Financial reported its first-quarter 2025 earnings, which showed earnings per share (EPS) of $3.45, missing the forecasted $3.69. The company’s revenue also fell short of expectations, coming in at $10 billion compared to the anticipated $10.6 billion. Despite these misses, the market reacted positively to the company’s strategic initiatives, including the upcoming acquisition of Discover, which is set to close on May 18. BTIG analyst Vincent Caintic raised Capital One’s stock target to $264, citing strong fundamentals and the anticipated synergies from the Discover merger. The analyst also reaffirmed a Buy rating on the stock, noting the company’s robust year-over-year growth in spending and lending. The regulatory approval of the merger with Discover was highlighted, although it received a Neutral rating. Capital One’s strategic focus includes maintaining its relationship with Visa (NYSE:V) for credit card network services to support its travel-heavy cardholder base, given Discover’s limited international acceptance. These developments reflect Capital One’s ongoing efforts to enhance its consumer banking platform and digital capabilities.
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